Retailers, Manufacturers Responding to Challenges With Innovative and Collaborative Tactics: GMA Study

WHITE SULPHUR SPRINGS, W.V. -- The 11th annual Grocery Manufacturers Association (GMA) Financial Performance Report conducted by PricewaterhouseCoopers, LLP found that the consumer packaged goods industry's median total shareholder return once again achieved historically strong levels in 2006 and outperformed the broader market.

CPG manufacturers and retailers are responding to industry challenges with new and innovative ways of working together, according to the report, which highlights trends, issues, and data that illustrate the financial performance of this sector, and how companies can best address emerging challenges to stay ahead of the competition.

By collaborating across the value chain, creating more agile organizations, and enhancing its understanding of consumer needs, the industry continues to generate significant financial returns, according to the study. Median net sales grew more than 6.1 percent between 2005 and 2006, and earnings before interest and taxes (EBIT) growth was strong.

"Consumers have more options today than ever," noted Stephen Sibert, GMA s.v.p. for industry affairs. "Manufacturers and retailers are becoming more consumer-centric and differentiating themselves to grow the top line as they compete for shoppers' discretionary income."

The study found that over the past several years, retailers and manufacturers have become more entwined. Companies are finding that targeted collaboration is increasingly important to provide consumers with products and services that meet their changing needs, while simultaneously achieving efficiencies and ultimately increasing net sales and profitability.

Retailers are focusing on product category growth, leveraging private labels, sharing data efficiency effectively, and customizing products and services to support their diverse formats and consumers. In support of retailers' efforts, there are collaboration opportunities for retailers and manufacturers around planning of product mixes, new product launches, advertising and digital media, data sharing, and data analysis.

Median net sales growth for retailers has slowed between 2003-2004 and 2005-2006.

Long-term trends that are affecting the retailer and consumer landscape include changing age demographics, strategic outsourcing of non-core competencies, the growing importance of digital technology, and an increased need for data security and customer privacy.

The study examines several key trends that have potential for long-term impact on the CPG industry, including volatility in commodity pricing.

"There is no silver bullet for manufacturers to manage risks associated with commodity price volatility, but two methods certainly can help," said John Maxwell, partner and global consumer packaged goods industry leader for PricewaterhouseCoopers. "First, an integrated approach to risk management involving an understanding of the interdependence of risks and their impact across the value chain, and second, organizational agility and responsiveness that promotes innovation, product differentiation, and substitution, along with effective supply chain management."

After uncharacteristically low one-year shareholder returns in 2005, CPG retailers and manufacturers have exhibited impressive returns in 2006, the study found. Manufacturers posted a healthy 11.8 percent median shareholder return, and retailers posted an impressive 16.2 percent median shareholder return. Five-year median shareholder returns for both manufacturers and retailers were approximately 10 percent, although retailers have experienced relatively more variable returns than manufacturers.

Manufacturers generated free cash flow at a median rate of 6.3 percent of net sales in 2006, with larger companies generating significantly more free cash flow as a percentage of sales than their smaller brethren.

The report was presented to senior executives attending the annual GMA Executive Conference at The Greenbrier in White Sulphur Springs, W.V. from June 8 through June 11.

For an electronic copy of the complete report compiled by PricewaterhouseCoopers, "Insights Into the Food, Beverage, and Consumer Products Industry: GMA/FPA Overview of Industry Financial Performance and Trends," visit or
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